Monday, March 18, 2013

The "Yes" to the fat cat initiative and the destruction of the social contract in Switzerland
Switzerland was for once progressive: it said yes to the so called fat cat initiative (“Abzocker-Initiative”) which gives shareholders more binding say over company executive compensation. The day after the vote media around the world reported about the decision in the tiny country. This shows that the verdict of Swiss voters hit the nerve of an issue of global interest.

Before the ballot economic-liberal commentators of the country described the fat cat initiative as a danger for the Swiss social contract between citizens and elite which consists of a highly liberal economic regulation. They acknowledged that the dismantling of the contract had begun when the economic elite started to pay exorbitant compensations to managerial top-shots which legitimised this with a hint to realities of the global economy. They also understood that such and similar behaviour (e.g. high risk strategies of banks) completely ignored the deeply anchored culture of egalitarianism and disliking pomposity in Switzerland.
Despite this, the elite omitted to approach the issues appropriately. In approvals to proposals like the fat cat initiative these commentators see the price the elite now have to pay for its ignorance: a further dismantling of the social contract in the form of more economic regulation. This probably all is true. But beyond this, citizens seem to have realised that the time has come to go new ways. The worldwide interest in the yes to the initiative supports this: it shows that the issue of the behaviour of detached economic elite is not a specific Swiss concern. And the yes indeed was not primarily a yes to strengthen shareholders’ rights but a yes to stop the detached behaviour of the elite.
It is key that the elite realises that it can hold no longer on obsolete practices and to preserve the “ancient rĂ©gime” if it wants to retain the social contract providing liberal economic conditions. Only if the elite are willing to understand moderation and the role of companies primarily to serve the society not as a local competitive disadvantage but as a global necessity the specific Swiss social contract without much regulation can be renewed.

Besides all this it would be negligent not to consider shortly the fact that the fat cat initiative reinforces the rights of shareholders. But even if one considers the enforcement of these rights as appropriate, the question about the interests of the other stakeholders stays largely unanswered by the initiative. Indeed, the initiative requires pension funds to vote in the interest of their insurants. But this alone is insufficient. Shareholders, of course, are also stakeholders. But they have specific interests and are a part of the economic elite (at least the larger ones). Switzerland has to go further down the road and the elite have to participate if it wants that the reforms do not come exclusively in the form of new regulations. Because the time is ripe for corrective measures reforms will come anyway, in either form (regulative or liberal). And because the issue is global in nature also the other countries are under pressure to reform.
Claude Meier

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